LOS ANGELES -- An independent power project in Sacramento, Calif., has achieved its goal of obtaining investment-grade ratings, marking a breakthrough for such a tax-exempt financing.

Standard & Poor's Corp. this week assigned a BBB-minus rating to a proposed $144 million bond sale by the Central Valley Financing Authority. Fitch Investors Service also rates the bonds BBB-minus.

A few taxable offerings by independent power producers have achieved investment-grade ratings, but the Central Valley authority's issue for the Carson Ice-Gen Project is the first tax-exempt offering to get such a grade, according to rating officials.

Financings for such projects historically have been obtained privately through banks, insurance companies, and other direct lenders. Recently, however, these financing alternatives have shrunk, partly because of increasing capital constraints on banks. And when financing is available, the terms are sometimes unattractive.

Those developments have spurred some independent power producers to test the public capital markets. As part of that process, some projects have sought investment-grade ratings.

The independent power industry is expected to grow, in part because the National Energy Policy Act of 1992 encourages construction of power-generating resources by non-utility companies to stimulate competition in the wholesale power market.

As a result, investors likely will see more independent power financings in the future.

One question is whether many of the deals will obtain investment-grade ratings. Security for the bonds hinges on project revenues alone -- rather than on the broader pledge of a utility -- and therefore generally entail more risk. Accordingly, the bond issues are commonly known as non-recourse financings.

The Central Valley authority bonds are expected to be sold on or about July 28 by an underwriting group led by Goldman, Sachs & Co. Bond proceeds will fund a cogeneration project, which is designed to benefit the Sacramento Municipal Utility District by helping to diversify the district's power resource mix and meet future growth requirements.

Both Standard & Poor's and Fitch mentioned the district's participation as a key factor in helping produce an investment-grade rating.

The district helped form the Central Valley authority -- a joint power agency -- and controls the authority through board representation.

District officials previously have said the financing structure makes sense for them, in part because the non-recourse deal allows an issuer to push the risk off its balance sheet.

But the district helped underpin the creditworthiness of the Central Valley financing, rating agency officials said. For example, Sacramento Municipal Utility District agreed to assume the risk of price movements in natural gas, which will fuel the Carson Ice-Gen project.

Standard & Poor's said "limited fuel risk and a close match of operating and maintenance costs with expenses result in extraordinarily stable cash flow" for the project. Fitch noted that another credit strength is the importance of this cogeneration project "to the needs of the utility and its service area."

Mark Ryan, a director at Standard & Poor's, said other independent power projects could achieve investment-grade levels, even without a strong backer such as the Sacramento district. "There's different ways to do it." he said, including building in high debt service coverage ratios.

In this instance, however, "that SMUD influence is extremely important" for the project's investment-grade rating, Ryan said in an interview yesterday.

Steve Nielsen, assistant treasurer of the district, said "we're very pleased" with the rating agencies' view of the transaction. "The hurdle that we were trying to jump over was the investment-grade category," so that goal was achieved, he noted.

Moody's investors Service was not asked to rate the deal. Nielsen said "a number of institutions" are interested in purchasing the bonds, and investor meetings are expected to be held next week.

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